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Provision of land for industrial usage needed to counter the impact of revitalization & regeneration in suburban areas

​29 August 2013 – Hong Kong should lay down a well planned provision of space across all real estate asset classes should it want to live up to its World City status, said CBRE. In its latest released ViewPoint, CBRE said while the release of underutilized space in former industrial enclaves to ease office, hotel and residential supply pressure is beneficial and should be encouraged, alternative provision should be made to cater for intense occupier demand from industrialists forced out due to the changing of use of many of the traditional areas.

Three years after the introduction of the industrial revitalization policy, the total volume of industrial space that is slated for conversion to other uses amounts to approximately 5.7 million sq. ft. Strong interest from occupiers, short supply and an abundance of liquidity in the market has driven high investor activity. In the two year period to the end of 2012, investment in industrial property experienced a boom with volumes increasing by 185%. Over the same period, rent and capital values of flatted factors rose by 43% and 107% respectively. Mr. Edward Farrelly, Head of CBRE Research for Hong Kong, Macau & Taiwan said, “The surge in investment activity has to a major extent been driven by plans to revitalize older space. The completion of some revitalization projects bears testament to the uplift in rents brought about by conversion. While local investors are most active we have also seen the emergence of property funds making acquisitions.”

Revitalised buildings have also provided much needed space on the office market, however this has been done at the expense of the supply of industrial space, which is already extremely scarce. Warehousing and logistics stock within the wider Hong Kong industrial market registers the lowest vacancy of any market in the world, standing just over 1% compared to 3.5% in Q2 2009 before the policy was implemented. According to CBRE Research, supply is set to drop to just 1.4 million sq. ft. through to end 2014, and negative net supply is set to surge to 800,000 sq. ft. as more industrial buildings are earmarked for alternative uses. “The strong demand of space is largely driven by a booming retail market and tenants being forced out of revitalized building, particularly in the Kowloon East area, are competing to source alternative space. The end result is a significant upswing in industrial rental levels,” commented Mr. Farrelly. Industrial rental growth has exceeded 30%, 40% and 60% for warehouses, factories and I/O respectively over the last three years.

“While the trade-off of older stock or underutilized industrial space for commercial / residential usage is inevitable, and indeed desirable, the government must facilitate the development of new industrial areas to cater for demand in key sectors,” suggested Mr. Darren Benson, Senior Director of Industrial & Logistics Services for CBRE Hong Kong, Macau and Taiwan. As we understand it, there are three areas on top of the government’s planning list for industrial land provision, including Tsing Yi, Tuen Mun West and Hung Shui Kiu, providing a total of around 70ha of land but with limited visibility on timing to market. “We view this as a major step in the right direction and hope that this plan can be activated quickly and done in a sensible way so that there is a sufficient buffer between the industrial and logistics use land so that all interest groups are satisfied and of course provide greater connectivity with the mainland through more efficient cross-border goods flow.

Industrial players in Hong Kong are faced with challenging times but if the land supply improvement actions are implemented, this will go a long way to alleviating the current supply crunch,” concluded Mr. Benson.

CBRE Group, Inc.

CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2012 revenue). The Company has approximately 37,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.

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